The Australian’s Stephen Lunn has penned an article calling for the Morrison Government to quickly resume the mass immigration ‘Big Australia’ policy at the earliest opportunity.
The article features immigration extremist Chris Richardson from Deloitte Access Economics, an economist who has previously called for Australia to lift its already turbo-charged immigration intake.
Let’s examine the article’s main arguments:
Net migration is projected to be just 35,000 next financial year, but it needs to be between 160,000 and 220,00 to maintain GDP per capita growth…
Migrants contribute to the “three Ps” of economic growth: population, participation and productivity. They have, in recent years, made up about two-thirds of overall population growth, increasing demand for everything, including housing, financial services, education and consumables.
A high proportion are of working age, paying taxes and bringing skills into the economy.
“For decades, our economic miracle has been built on people power, and we won’t have that for the next little while. If you take away net migration, you take away a lot of the growth impetus the nation has,” Deloitte Access Economics chief economist Chris Richardson said.
“Those estimated losses in NOM (net overseas migration) numbers represent a bit over 1 per cent of the total population, but as much as 2 per cent of the value to the economy.
“It’s not simply a quantity issue; there’s a productivity and participation element, with people coming in on temporary or permanent working visas being of working age with relevant skills. At 2 per cent of the economy, you are talking about $40bn a year”…
Despite the certain rise in the unemployment rate of Australian citizens in coming months, the skilled migration program will be critical to the nation’s recovery, immigration experts told The Australian.
The claim about net overseas migration (NOM) needing “to be between 160,000 and 220,00 to maintain GDP per capita growth” is based on the spurious modelling of demographer Peter McDonald, which claimed that Australia’s GDP per capita would be 12% higher in 2053 under current mass immigration settings versus zero net overseas migration, “due only to the impact of migration on age structure” (i.e. more workers relative to non-workers).
This model only looked at the impact of immigration on per capita GDP, while ignoring all other pertinent issues:
At the same time, increases to migration add constantly to the population and this increases the burdens associated with the provisioning and servicing of a growing population. This gives rise to the question of balance. At what point do the disadvantages of increased population outweigh the advantages to the economy of increases in immigration? This is a very large question and is beyond the scope of this report. Instead, this report examines one component of this question. Is there a point where further increases in immigration lead to substantially lower marginal increases in the growth of GDP per capita? (p. 19, emphasis added).
But anyone worth their salt knows that per capita GDP is a very poor measure of wellbeing, since it ignores vital issues like the degradation of the environment, the depreciation of natural resources, worsening inequality, and declines in individuals’ quality of life (e.g. traffic congestion and having to live in smaller and more expensive housing).
In this regard, the Productivity Commission was blunt, noting that “GDP per person is a weak measure of the overall wellbeing” in its 2016 Migrant Intake Australia report:
While the economywide modelling suggests that the Australian economy will benefit from immigration in terms of higher output per person, GDP per person is a weak measure of the overall wellbeing of the Australian community and does not capture how gains would be distributed among the community. Whether a particular rate of immigration will deliver an overall benefit to the existing Australian community will crucially depend on the distribution of the gains and the interrelated social and environmental impacts.
Interestingly, the final paragraph of McDonald’s 2010 modelling concluded with the following warning that if infrastructure doesn’t keep pace with population growth, then both productivity and living standards will suffer:
While this report argues that immigrants will be important to the construction of productive infrastructure in Australia, if increased immigration proceeds without investment in new infrastructure, especially urban infrastructure, the result could be reductions in productivity through increased congestion and inefficiency. Thus, a plan relating to Australia’s future levels of immigration must be coordinated with policy for urban infrastructure especially housing, transport, water and appropriate energy supply. With constant fertility and net migration at 180,000 per annum, Australia’s population would rise to 35.9 million by 2050. This is a large increase and most of the additional population would be settled in the existing cities all of which are already under strain from infrastructure shortages. (p. 45)
Chris Richardson has also previously warned that Australia needs to spend five times as much on infrastructure if it hopes to keep up with projected “exceptional” levels of population growth, or we will suffer declining productivity and living standards:
Mr Richardson, a partner with Deloitte Access Economics, says a “disappointingly patchy” approach to infrastructure investment means that Australia is running well behind on the infrastructure spending required to ensure smooth-functioning big cities like Melbourne and Sydney and a yawning gap has opened up…
He says that infrastructure spending in the next 50 years in Australia needs to be running at five times the rate it has been in the past 50 years…
Australia had been too slow to build the infrastructure to cater for the extra 380,000 people a year it would add to its current 25 million population and now people are angry as traffic congestion cost the nation an estimated $20 billion a year. An extra 380,000 people a year was the equivalent of a regional city the size of Canberra.
“Where’s the extra Canberra in terms of infrastructure?” Mr Richardson said…
“Better infrastructure is the path to prosperity. We are not on that path.”
Given that Australia’s infrastructure has unambiguously failed to keep pace with mass immigration, and that traffic congestion (among other liveability indicators) has unambiguously worsened, surely this renders McDonald’s model and Chris Richardson’s claims about the benefits of mass immigration null and void?
It is also worth noting Productivity Commission research showing that Australia’s productivity has slumped since 2005, which coincides with the ramp-up in NOM (see next chart). This is no coincidence.
Rather than trying to restore the mass immigration model, Australia should instead aim for a smaller quantity of high quality migrants. This can be achieved by:
- Lifting the pay floor on skilled migration (both permanent and temporary) to the 75th percentile of earnings (see here); and
- Lifting English language and financial standards for international students (see here).
A lower volume but higher quality intake of migrants would unambiguously maximise productivity benefits and minimise costs, improving living standards for the incumbent Australian population.